Suzano S.A.'s (BVMF:SUZB3) Price In Tune With Revenues

When close to half the companies in the Forestry industry in Brazil have price-to-sales ratios (or "P/S") below 0.5x, you may consider Suzano S.A. (BVMF:SUZB3) as a stock to potentially avoid with its 1.6x P/S ratio. Although, it's not wise to just take the P/S at face value as there may be an explanation why it's as high as it is.

See our latest analysis for Suzano

What Does Suzano's P/S Mean For Shareholders?

Suzano has been struggling lately as its revenue has declined faster than most other companies. Perhaps the market is predicting a change in fortunes for the company and is expecting them to blow past the rest of the industry, elevating the P/S ratio. You'd really hope so, otherwise you're paying a pretty hefty price for no particular reason.

Keen to find out how analysts think Suzano's future stacks up against the industry? In that case, our free report is a great place to start.

Do Revenue Forecasts Match The High P/S Ratio?

In order to justify its P/S ratio, Suzano would need to produce impressive growth in excess of the industry.

Taking a look back first, the company's revenue growth last year wasn't something to get excited about as it posted a disappointing decline of 18%. That put a dampener on the good run it was having over the longer-term as its three-year revenue growth is still a noteworthy 18% in total. Although it's been a bumpy ride, it's still fair to say the revenue growth recently has been mostly respectable for the company.

Looking ahead now, revenue is anticipated to climb by 9.9% per annum during the coming three years according to the analysts following the company. With the industry only predicted to deliver 5.8% each year, the company is positioned for a stronger revenue result.

With this information, we can see why Suzano is trading at such a high P/S compared to the industry. Apparently shareholders aren't keen to offload something that is potentially eyeing a more prosperous future.

What We Can Learn From Suzano's P/S?

While the price-to-sales ratio shouldn't be the defining factor in whether you buy a stock or not, it's quite a capable barometer of revenue expectations.

We've established that Suzano maintains its high P/S on the strength of its forecasted revenue growth being higher than the the rest of the Forestry industry, as expected. At this stage investors feel the potential for a deterioration in revenues is quite remote, justifying the elevated P/S ratio. Unless these conditions change, they will continue to provide strong support to the share price.

You should always think about risks. Case in point, we've spotted 2 warning signs for Suzano you should be aware of, and 1 of them is potentially serious.

If you're unsure about the strength of Suzano's business, why not explore our interactive list of stocks with solid business fundamentals for some other companies you may have missed.

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This article by Simply Wall St is general in nature. We provide commentary based on historical data and analyst forecasts only using an unbiased methodology and our articles are not intended to be financial advice. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. We aim to bring you long-term focused analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material. Simply Wall St has no position in any stocks mentioned.